Measuring corporate tax rate and tax base avoidance of U.S. Domestic and U.S. multinational firms

Abstract

We develop an approach based on publicly available data to decompose and quantify tax avoidance into two separate components: tax rate avoidance and tax base avoidance. Our measures are based on the average statutory tax rate, which accounts for the statutory tax rates across all transactions of a firm. We illustrate and validate our measures using simulation data, the Tax Reform Act of 1986, the Tax Cuts and Jobs Act of 2017, changes in tax rate avoidance and tax base avoidance across time, bonus depreciation time periods, several sample splits of U.S. multinational and domestic firms, differences across industries, and firms operating in tax haven locations. The measures allow regulators and researchers to gain insights into these two conceptually different tax avoidance strategies.

Using the Linear Cash Taxes Paid Model in Accounting Research: Developing a Tax Model That Permits the Inclusion of Loss-Years

“…Comparing U.S. MNEs and U.S. domestic firms, the authors find that MNEs rely on tax rate avoidance, and domestic firms rely on tax base avoidance. We agree with the findings of Lampenius et al (2021). Therefore, our study reexamines the Dyreng et al (2017) study regarding the differing tax avoidance of U.S. MNEs and their domestic counterparts by testing the following hypotheses.…”

“…We find that U.S. MNEs achieve greater levels of tax avoidance with regards to taxes that are a function of current pretax income; whereas, U.S. domestic corporations achieve greater levels of tax avoidance with regards to taxes that are independent of current pretax income arising from book-tax differences. Overall, our findings complement the findings of Edwards et al (2021), Lampenius, Shevlin, andStenzel (2021), and answers the call for the inclusion of loss years when analyzing corporate tax avoidance (Hanlon and Heitzman 2010).…”

“…Dyreng et al (2017), in an extensive empirical analysis, find that U.S. MNEs do not have a tax rate advantage over U.S. domestic firms. However, Lampenius et al (2021) develop an approach to decompose tax avoidance into two separate components; tax rate avoidance and tax base avoidance. Comparing U.S. MNEs and U.S. domestic firms, the authors find that MNEs rely on tax rate avoidance, and domestic firms rely on tax base avoidance.…”

Corporate Tax Avoidance of Malaysian Public Listed Companies: A Multi-Measure Analysis

“…This demonstrates the effectiveness of financial statement information to represent actual tax returns data in empirical analyses (Salihu et al, 2013). Therefore, this study chooses to focus on corporate tax avoidance measures developed using financial statement information, where the most common measures are ETR and BTD (Hanlon & Heitzman, 2010;Niklas Lampeniusa, Terry Shevlin, Arthur Stenzelc, 2021).…”

Do state tax changes affect corporate tax aggressiveness? US evidence

“…Early studies find that firms facing higher marginal tax rates (MTR) are more likely to engage in transactions that reduce taxable income (Goolsbee, 2004; Mackie‐Mason and Gordon, 1997). Lampenius et al (2021) show that national tax reforms, such as the Tax Cuts and Jobs Act of 2017, have a significant effect on corporate tax aggressiveness. Existing research largely focuses on tax policy changes at national levels.…”